10 Reasons for Entrepreneurial Failure

Getting success in an entrepreneurial venture is not the result of a single person’s efforts. There is always a team involved in it. The team is made up of another group of people like investors, working partners, employees, vendors, creditors, customers, and clients.

All play an important part in the success or failure of the enterprise. Although other people are involved, there is a tendency to believe that they play less important roles and at the end of the day, the success or failure of the enterprise will largely depend on the entrepreneur’s vision, skill, and achievement level.

Reasons for Entrepreneurial Failure

Because of limited productive resources, high levels of uncertainty, and risk, inexperienced management personnel, employees, and new ventures suffer fear mortality much higher than the well-established firms. There are a number of reasons for entrepreneurial failure and these are discussed below:

  1. Inadequate Management of Finance
  2. Lack of Professional and Experienced Management Team
  3. Weak Promotional Efforts
  4. Unplanned Rapid Growth
  5. Shortage Trained or Experienced Manpower
  6. Lack of Appropriate Information
  7. Improper Price Management
  8. Lack of Strong Business Relationships
  9. Less Concerned about Management
  10. Narrow Vision

Inadequate Management of Finance

Due to a lot of operational issues sometimes, financial management is likely to get neglected. Sometimes entrepreneurs are more concerned about raising the funds, they are less concerned about utilization of funds.

Common errors in financial management can be bad receivables management, improper cash management, unproductive investments, and poor budgeting decisions, poor inventory management.

Lack of Professional and Experienced Management Team

One of the main problems faced by new enterprises is that the management team is usually very new to their role. Due to the lack of professional management the management of process, and management of people go in the wrong direction.

Even in some rare cases, when the management has some individuals who have led a company in the past, they are now faced with a situation where the company itself has no previous track record. It is a very different kind of situation.

Weak Promotional Efforts

Entrepreneurial firms are very reluctant to spend on promotional activities. Sometimes entrepreneur thinks that investing in this campaign is not going to give assured returns and the link between the promotional expenditure and the sales is not very easy to establish.

This problem is mainly faced by the entrepreneurs who are in manufacturing business and their target segment is the last customer.

Unplanned Rapid Growth

Unplanned growth is not always a desirable situation. Higher growth will put greater stress on the production facilities, manpower, distribution, and working capacity of Venture.

These are designed to cater to the rise in volumes up to a limit and to increase the limit and productivity they might need further capital investments. It will lead to a stage of continuous firefighting and ultimately, many things may not keep pace with the growth. Most commonly, the organization may run out of cash.

Shortage Trained or Experienced Manpower

Shortage of skilled and experienced manpower and shortage of technologists is faced by new ventures. Most people prefer to work with a well-established organization employing hundreds of employees and having a stable track record and experienced manpower has less desire to work with a new venture.

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New ventures are also reluctant to invest in training and development. Lack of experienced and skilled manpower can lead to a general drop in productivity and quality of output. The absence of quality manpower is particularly felt during a crisis.

Lack of Appropriate Information

Even in this era of free-flowing information, the quality of information available to large corporations is superior then the information available to new small entrepreneurial ventures. Quality information always has some cost and small ventures may not be able to invest so much in getting high-quality information.

For example, before entering a new market, the new venture may send some sales persons to interview customers, retailers, and wholesalers. On the other hand, the large corporation may here the services of a market research firm and carry out a thorough investigation of the potentiality of their future product or service and the opportunities of the new market.

Improper Price Management

The price of the product/service plays a pivotal role in marketing the product/service. There are many sophisticated pricing policies a new venture can adopt, taking into account its cost structure, productivity level, nature of demand, and extent of competition.

The entrepreneur can introduce a new innovative pricing system for example, Deccan Airways revolutionized airline pricing in India by introducing low-priced airways. However improper management of price creates a lot of problems for entrepreneurs as the price is directly associated with the volume of sales.

Lack of Strong Business Relationships

Relationships with vendors, creditor, venture capitalist, customers, and others is a huge advantage to established businesses.

A new venture will have to establish new relationships and work hard at strengthening them. Such business linkages help in the smooth conduct of business and are invaluable at times of distress. Otherwise, the conflict between these relations may create a lot of problems for the establishing venture.

Less Concerned about Management

Improper inventory management can lead to tough problems. Production can be halted due to insufficient inventory, whereas excess inventory can lead to wastage and financial loss.

In the case of perishable goods, high inventory can lead to the expiration of stock. An inflated valuation of inventory can give a very wrong picture of the financial position of the firm and this may lead to a wrong pricing policy.

Narrow Vision

A number of small new firms face huge problems with operational issues and these problems can threaten the very existence of the venture at the time of start-up. In such circumstances, the management of the venture focuses on surviving the immediate crisis and resolving the conflict, and soon the long-term vision and strategy of the firm are forgotten.

If this continues for long, the danger is that long-term plans and strategies will be discarded as impractical or irrelevant. Ultimately, the firm acquires a shape very different from what was originally envisaged by the entrepreneur.

FAQs About the Reasons for Entrepreneurial Failure

What are the reasons for entrepreneurial failure?

The following are the reasons for entrepreneurial failure:
1. Inadequate Management of Finance
2. Lack of Professional and Experienced Management Team
3. Weak Promotional Efforts
4. Unplanned Rapid Growth
5. Shortage Trained or Experienced Manpower
6. Lack of Appropriate Information
7. Improper Price Management
8. Lack of Strong Business Relationships
9. Less Concerned about Management
10. Narrow Vision.

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